Innovation key to manufacturing

On February 7, NSW Premier Barry O’Farrell will officiate at the launch of a new $28-million machine designed to manufacture disposable pants, including the Pull-Ups brand, at Kimberly-Clark’s Ingelburn plant.
AFR

by
Sally Rose

Asked for his policy wish-list in this federal election year, Kimberley-Clark’s local finance chief has a few ideas for the politicians but cautions the manufacturing industry can’t rely on government intervention to solve its woes.

“Manufacturing has to stand on its own two feet," says Kimberly-Clark chief financial officer Australia New Zealand
Tony MacMahon
.

“The only way to compete against cheap imports into the Australian market is to keep coming out with new premium products and continually improve efficiency in the supply chain."

Kimberly-Clark in 1989 invented Pull-Ups, an innovation that has enabled the company to sell disposable “pants" to parents while they toilet train their kids. Since then the US parent has been cultivating global market demand among new parents for a wider range of products to supplement its traditional cash cow of disposable nappies.

Kimberley-Clark ANZ
manufactures most of its Huggies line locally, the brand accounts for 70 per cent of the local business and is also its most profitable brand by margin.

Pull-ups, Dry Nights and Little Swimmers have all been imported and aggressively marketed to the local market for a number of years. Demand for this category of products has now reached the critical mass required to make producing them in Australia viable.

On February 7, NSW Premier
Barry O’Farrell
will officiate at the launch of a new $28-million machine designed to manufacture disposable pants at the Ingelburn plant.

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Manufacturing the range onshore will reduce transport costs but more importantly it will make it possible to customise the product for the local market.

Sizing flexibility is a big issue. “On average Australian babies are larger than those in Asia," says MacMahon.

“The ability to print different graphics on the waistbands and produce promotional packaging will also add value for the local market."

“Australia and New Zealand accounts for approximately 8 per cent of Kimberley-Clark’s business globally so it is considered a significant market, particularly because it is a very efficient market. Low people and resource costs compared to other markets mean [the local division] pays a relatively high dividend.

“Australia is a good market because we have an appetite for premium products."

That appetite is strong enough to justify a $6.5 million upgrade at the Albury mill, near the NSW-Victoria border, to facilitate a change in the specifications of Kleenex Toilet Tissue.

“Softness and strength are the two key qualities in loo paper," says the CFO. “Changing the product to make the ridges tighter made it stronger and therefore better, but you have to convince people to pay for that."

In 2012, Kimberly-Clark spent $30 million on co-generation technology to create a self-sufficient electricity supply for the Millicent plant near Mt Gambier in South Australia. Implementing co-generation is not commercially viable for the smaller plants. The business is currently reviewing how to make those operations more energy efficient.

In the context of this review, the finance chief says he “would love to see a clear investment policy from the government" as well as “a clear policy on the privatisation of utilities, and how that will affect pricing".

The company publicly supported the government’s 2012 illegal logging bill. The use of accredited materials is featured prominently in its marketing to promote the sustainability credentials of its brands, which are dominated by single-use paper products.

Two years ago the company was part of an industry campaign pushing for tighter regulations on the sale of below-cost imports. “It would be good to see the government take a strong lead on anti-dumping," says MacMahon.